Can China’s “Tax-for-Fee” Reform Improve Water Performance–Evidence from Hebei Province

Abstract

Resource tax has been widely adopted in many countries. This paper evaluates the causal effect of reform of water resources tax on water resources performance in Hebei Province, China. By using the provincial panel data, we first measure the water resources performance of 21 provinces from 2008 to 2018 by considering the NDDF-ML method of undesirable output. We found that each province in China has gradually improved its water resources performance in the past 10 years, but there are great differences between regions. Then, we employ the synthetic control method, which allows us to consider the influence of unobservable time-varying factors to evaluate the policy effect. The results show that water performance index has increased significantly by 18.0%. The effect is mainly due to technological progress (17.3%) rather than technological efficiency (0.7%), which means no significant improvement in the allocation of water, and after placebo tests, our results are still robust. The DID approach shows a similar conclusion, but unobservable time-variation caused by other policies may lead to an overestimation of DID. In order to make good use of water resources, China should accelerate the reform of water resource taxes and pay more attention to the allocation of water resources.